CLIENT EXECUTIVE, RHYS BROWN, RESPONDS TO THE AUTUMN STATEMENT.
As admittance of recession finally came with an additional issue of rising unemployment, the country seemed in a grim state as the Chancellor rose to his feet to explain how he would tackle inflation and simultaneously increase growth across our shores.
In recent years, Chancellors have used their economic statements as an eruption of positive policy and an opportunity to show how the Government has ground-breaking ideas to move the country forwards. This is not what we heard yesterday.
Less than eight weeks since the former Chancellor Kwasi Kwarteng’s mini-Budget, Jeremy Hunt had to appear to be putting the economy back together and outlining a sustainable way forward.
The issue affecting everybody across the country is inflation and this statement will be measured on whether it helps in reducing the level of inflation the UK is experiencing.
Despite tax rises being less extravagant than many had feared, there were big announcements with the lowering of the additional rate of tax from £150,000 to £125,140 from 6 April 2023 and cuts to Capital Gains and Dividend allowance amounts. The big news in the housing sector was the removal of the stamp duty cut, this was delayed until 2025.
Unlike most public sector budgets, the NHS and education departments will see more cash being spent on them. Hunt found an extra £3 billion for Health, £4 billion for social care and £2.3 billion for education. However, the social care increase would be dependent on council tax rises across the country.
Other Governmental departments saw their budgets frozen alongside the current spending plans for the short term and then a 1% real term growth from 2025. A freeze in budget means a freeze in pay for millions of public sector workers, as industrial action has become normalised across the country, we could be in line for further upheaval from the unions in the months and years to come.
The plans to tackle inflation were limited, we did not see Osborne style cuts or huge tax rises like many were expecting, this was a sustainable Conservative style approach from a well experienced cabinet minister. He did not repeat the mistakes of his immediate predecessor by trying to make too many changes too quickly.
Growth, Growth, and more Growth
Despite the axing of Trussenomics and eventually Truss herself, her priority of growth was still prevalent across this statement.
There had been speculation of a U-turn on investment zones and a watering down of the levelling up agenda, but these were both reinforced.
Investment zones are retained and set to be focused on universities in “left behind” areas – with more detail to follow in the Spring budget – whilst more devolution deals in England were promised in Suffolk, Cornwall, Norfolk and “an area” of the North-East. This all should provide a boost to Michael Gove’s levelling up plans.
The Government hopes that growth in the planning sector will be supported by an overhaul of the planning system including through updating National Policy Statements for transport, energy, and water resources during 2023, and through sector-specific interventions.
The Chancellor also announced a £600 billion spending pot for social infrastructure projects such as the building of roads, trainlines and community projects over the next five years.
Other funding followed with £1.7 billion for investment in local infrastructure projects and further opportunity for development across the UK.
Real growth will be determined by how quickly inflation can be taken control of and how investable the UK is after the recession hits. The Chancellor’s announcements will support growth but only if the economy is in a good place.
Public services are set for a tough time over the coming years. Despite education and health receiving an increase in funding, other areas of the state are going to feel the pinch, none-more so than local authorities.
Whilst funding becomes harder to come by with inflation hitting 11%, more pressures are placed on local authorities by the Chancellor. Capping social rent increases below inflation will mean that many authorities will not be able to increase rent at the rates they were expecting.
Meanwhile an increase in the national minimum wage means the figure rises over the £10 per hour mark for the first time, this will put pressures on organisations up and down the country, but especially local authorities.
Some local authority capital could be recuperated through the Government creating extra flexibility with council tax setting levels; however, this will be unpopular and used as a political football in council elections, many of which (outside London) are less than six months away.
A credible path forwards?
With his tax rises and spending cuts of around £54bn, the Chancellor has delivered the statement he promised, credibility will be measured on where the economy is in months to come.